Mon | Mar 19, 2018

JPS sees ethane, propane as poor long-term fuel - Still favours LNG

Published:Friday | September 26, 2014 | 12:00 AM

Avia Collinder, Business Reporter

With the Electricity Sector Enterprise Team (ESET) having endorsed gas as the fuel to generate new electricity supplies, energy pro-viders are honing in on ethane and propane as two of the best prospects to add capacity in the short term.

Jamaica Public Service Company (JPS) said Tuesday that both gases are under consideration for its generating network, but John Kistle, the power company's senior vice-president for generation and project development, also confirmed that the power utility is still solidly in favour of LNG as a more viable long-term fuel source.

"JPS has valued each of the known options as well as assessed the risks associated with delivery and operation. When considering the global availability and supply mechanisms for each of these fuels that are available to Jamaica, LNG provides the best long-term pricing and lowest operating risk," Kistle said.

JPS plans initially to convert its plant at Bogue to propane - to which ESET has put a start date of 2015 for the project - but will eventually transition to LNG.

Propane as a potential fuel source has been floated before, but up to this year, ethane was not on Jamaica's radar. That changed with a proposal from America Ethane (AE), which is working with mining company UC Rusal to transform the energy source at the shuttered Alpart bauxite operation to ethane.

Rusal Jamaica and America Ethane first disclosed the plan publicly in discussions with The Gleaner in July, with AE senior vice president Walt Teter saying then that the fuel source was a viable alternative because it was cheaper and supplies had opened up.

Independent power provider Jamaica Private Power Company Limited (JPPC) has also been weighing ethane and propane as alternatives, and for now sees them as preferable to LNG. Ethane and propane are classified as natural gas liquids of NGLs.

"The Government wants a diversified grid and there are various forms of gas we are looking at," said JPPC chief executive officer Ingrid Christian-Baker in an interview last week.

As for LNG, "I don't know if that is the most viable form at this time given the size of the requirements of the Jamaican grid, which is why we have been having such a large problem bringing LNG. I don't know who is going to supply for 300MW or 800MW," she said.

smaller projects focus

The framework for the energy programme laid out by ESET last week essentially kills the idea of selecting one investor for a big LNG project - four separate efforts at deals with Exmar, JPS, Azurest and Energy World International all derailed over time - and is now focused on smaller projects by multiple players.

In his first report, ESET consultant Dr Vincent Lawrence laid out potential projects spanning 2015 to 2017 - incorporating gas, LNG, coal and renewables - but noted that another 120MW of capacity would be needed by 2023.

Kistle of JPS says the company's interim preference for propane rests with the industrial gas' more advanced delivery system.

"Propane has a very developed and diverse delivery mechanism. However, the fuel is not cost competitive with LNG in certain generation applications," that is, the high productivity required for base load generation, he said.

"Propane can be deployed quickly and is immediately available in Jamaica. The capital cost for the infrastructure to employ propane is also limited when compared to LNG. However, the variable cost will become excessive if the demand for the fuel is high," the energy executive said.

Kistle adds that while ethane is currently cheaper than natural gas under hub pricing, it is not a globally traded commodity and there is at present no export capacity anywhere in the world.

"Thus, a full delivery system needs to be constructed, which comes at a significant capacity cost to the end user, and the delivery system is fully exposed to single-point failure mechanisms and opportunity (single supplier)," he said.

Natural gas is trading at around US$4 per 1,000 cubic feet, ethane at about US$0.30 per gallon and propane at about US$1 per gallon.

Kistle noted that while the variance in fuel cost might be immediately attractive, the more important issue is the long-term volatility of each fuel and its corresponding impact on the future rates of electricity.

"LNG offers the best long-term price with less volatility in the pricing of the underlying commodity," he said.

Additionally, he predicts that any infrastructure to be developed for ethane may become more costly in the long term.

"Ethane infrastructure will be expensive. The capacity payment for the supply of these gases will pay for all the off-shore investment of the supplier with no long-term benefit to the consumers of Jamaica. The in-country infrastructure for ethane and propane is presently cheaper than LNG, but that is not expected over the long term, post 2018."

By contrast, he said the corresponding benefit of LNG is "a very broad and diverse supply network which provides for competitive pricing".

Just in North America alone, there are 250 million tonnes/annum of new capacity in construction and development. The new 190MW project will cost consumers only .4 million tonnes/annum. This new capacity will result in lower prices and lower supply risks in the future."